By Milena Kaniewska-Srodecka, Senior Economist, CrossBorder Solutions
The transfer pricing revolution in Poland started in 2017. As a result, the new rules have become much more demanding for Polish taxpayers. They introduced new transfer pricing instruments, such as the Mandatory Benchmark and Master File (entirely new requirements for Polish taxpayers), and also expanded the Local File. The new rules, however, were not very clear. In the following years, the tax authorities introduced amendments which reorganized the Polish corporation tax law (as well as the law on personal income tax) and granted transfer pricing a special place – a separate chapter. However, the general rules are not only found in the corporate income tax law. To make sure you follow all the rules, you should also check the decrees issued by the Polish Ministry of Finance. And to be aware of the risks of transfer pricing non-compliance, you should also follow other laws regarding the Tax Ordinance and Tax Penalty Code.
Once you started your exciting new transfer pricing journey in Poland, you had to study the 2017 rules. to overcome many obstacles, mainly with the interpretation of the new regulations and the technical problems related to the transfer pricing form. New developments in transfer pricing are now expected.
Transfer Pricing Form
In practice, the Polish transfer pricing form has become a summary of the local file, providing very detailed transaction and reference information. All data is summarized in electronic form, very transparent for the tax authorities and easily manageable to label transactions “interesting” for a tax audit. Also, since the form summarizes the key data present in the local files with benchmarks, you should treat it as if you had actually submitted your local file to the tax authorities on an annual basis without any additional request. In fact, without benchmarks, you would not be able to submit the correct transfer pricing form. And because it is in electronic form, it is quite easy for the tax authorities to analyze it and find possible loopholes.
Surprising requirement for transactions in tax havens
A recent change introduced in 2021 and rather unexpected from a global perspective is the requirement to prepare the local record for transactions involving a party sitting in a tax haven, even if it is an unrelated party . Of course, there are thresholds, but the whole concept poses many problems for Polish taxpayers. The main challenge is to correctly identify those transactions and entities that may require further action regarding transfer pricing compliance.
Polish Deal Program 2022
Recent changes covered by the so-called New Deal seem to be quite promising for Polish taxpayers. They include extended deadlines for transfer pricing compliance and the exemption of benchmarks, or even local files in specific cases. Following the general trend in the transfer pricing world, the electronic form of transfer pricing records will be mandatory in Poland. The scope of the tax penalty for non-compliance of local files has also been extended.
Polish Transfer Pricing Forum
The Polish Ministry of Finance has organized a Polish Transfer Pricing Forum where transfer pricing experts can discuss transfer pricing issues with tax authorities. The results of this cooperation are published in the form of recommendations prepared by transfer pricing experts and accepted by tax authorities. The number of such recommendations is growing rapidly as working groups dedicated to specific areas of transfer pricing continue to grow. Poland has the potential to become one of the leading transfer pricing providers considering the volume of recommendations issued to date in this country.
Next changes on the horizon
Last year, the Polish Ministry of Finance announced that Poland would participate in a project entitled “Strengthening the transfer pricing legal system against tax avoidance behavior”, carried out under the “Technical Support Instrument” program of the European Union.
The project is based on the exchange of best practices in the field of documentary obligations, electronic reporting and analysis with partner countries. As part of this initiative, Poland has established cooperation with five countries recognized as leaders in the field of competitive transfer pricing regulation. Poland’s partners in the implementation of the project are Great Britain, Germany, Sweden, the Netherlands and the United States. Experts from these countries will share their experiences and technological solutions with representatives of the Polish Ministry of Finance.
Stay focused and stay tuned
To be transfer pricing compliant in Poland, you must follow not only changes in tax and tax penalty law, but also explanations and recommendations issued or accepted by the Polish tax authorities. While the tax legislation in this area appears to be getting simpler (compared to the first regulation in 2017), there are still areas of litigation, unexpected hurdles, and mounting consequences for non-compliance.
We’ve been running this “TP Runmageddon” since 2017 and it looks like the finish line isn’t on the horizon just yet. This should come as no surprise to the transfer pricing community, however, as transfer pricing continues to evolve as international tax law evolves.
Milena Kaniewska-Srodecka is Senior Economist at CrossBorder Solutions